7. Foreign income
Are foreign incomes taxed in Luxembourg?
Double taxation is prohibited within the European Union. This means you do not pay tax twice on the same income in two different countries.
According to the double tax treaties signed between Luxembourg and many countries, your foreign income is not directly taxed in Luxembourg.
You can consult the full list of applicable tax treaties on the official website of the Luxembourg Direct Tax Administration.
However, this income is taken into account to calculate your average tax rate. This rate is then applied only to your Luxembourg income.
Advantage of taxx.lu
With taxx.lu, declaring your foreign income is quick and easy: calculations are performed automatically and the amounts are entered directly into the appropriate boxes on your tax return.
What types of foreign income must be declared?
Even if they are not taxed in Luxembourg, you must declare all your foreign income, for example:
- Salaries and wages earned abroad
- Rental income from property located abroad
- Investment income (dividends, interest) from abroad
- Self-employed or business income abroad
Converting income to euros
It is essential to declare all amounts in euros in your Luxembourg tax return.
For the 2024 tax year, you can refer to the official documents of the tax administration. When converting, use the "Annual average rate" column.
If the exchange rate for a foreign currency is not indicated in the document, you can use the annual average exchange rate available on the Internet for the relevant tax year. It is advisable to attach an annex to your return indicating the exchange rates used.
Why do foreign incomes influence your rate?
The principle is as follows:
- Your worldwide income (Luxembourg + foreign) is used to determine your tax rate.
- This rate reflects your real ability to pay.
- Once this rate is calculated, it is applied only to your Luxembourg income.
Thus, your foreign income increases the applicable rate on your Luxembourg income, but is not taxed a second time in Luxembourg.
Example with foreign income
Let's imagine the following situation:
- Luxembourg income: 50,000€
- Foreign income: 30,000€
- Total worldwide income: 80,000€
Step 1: Calculation of the average tax rate
The tax administration first considers the total income (Luxembourg + foreign).
In tax class 1, for an annual income of 80,000€ in 2024, the average tax rate is 24.64%.
Step 2: Application of the rate only to Luxembourg income
Even though the rate is calculated on 80,000€, it applies only to income taxable in Luxembourg (here: 50,000€).
50,000 × 24.64% = 12,320€
Step 3: Adding the employment fund contribution
To the tax amount thus obtained, the employment fund contribution (7%) must still be added, which is mandatory.
12,320 × 1.07 = 13,182.40€
Total tax due in Luxembourg: 13,182.40€
Example without foreign income
Now let's take the same person, but without foreign income:
- Luxembourg income: 50,000€
Step 1: Calculation of the average tax rate
This time, only Luxembourg income is taken into account.
In tax class 1, for 50,000€ in 2024, the average tax rate is 16.04%.
Step 2: Application of the rate to Luxembourg income
50,000 × 16.04% = 8,020€
Total tax according to the scale: 8,020€
The employment fund contribution (7%) must still be added, which is mandatory.
8,020 × 1.07 = 8,581.40€
Total tax due in Luxembourg: 8,581.40€
Comparison of the two situations
- With foreign income: 13,182.40€ tax
- Without foreign income: 8,581.40€ tax
Foreign income is not taxed twice, but it increases the rate applied to Luxembourg income, which makes the final tax higher.